a. I. Jack in Bedford, NY is considering expanding his magic show business and has gathered...
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a. I. Jack in Bedford, NY is considering expanding his magic show business and has gathered the following data. The special truck he needs costs $90,000. He can depreciate the truck on a straight line basis over five years. At the end of five years, the project will terminate and he expects to sell the truck for $23,000. Jack expects annual revenues to be $120,000 and operating expenses to be $80,000 per year. The business will require an initial investment in working capital of $9,000 and thereafter working capital requirements are expected to remain constant. If the marginal tax rate for this business is 40%, calculate the operating cash flows for the project in each of years 1-5. (10 points) b. Calculate the terminal cash flows, or the special cash flows that occur in the last year of the project (year 5). (6 points) Calculate the project cash flows, or the sum of initial investment, OCF, investment in working capital, and terminal cash flows (if any) in each of years 0-5. (10 points) d. Calculate the NPV and IRR for the project based on the cash flows estimated in part (c) assuming that the discount rate is 22%. (6 points) a. I. Jack in Bedford, NY is considering expanding his magic show business and has gathered the following data. The special truck he needs costs $90,000. He can depreciate the truck on a straight line basis over five years. At the end of five years, the project will terminate and he expects to sell the truck for $23,000. Jack expects annual revenues to be $120,000 and operating expenses to be $80,000 per year. The business will require an initial investment in working capital of $9,000 and thereafter working capital requirements are expected to remain constant. If the marginal tax rate for this business is 40%, calculate the operating cash flows for the project in each of years 1-5. (10 points) b. Calculate the terminal cash flows, or the special cash flows that occur in the last year of the project (year 5). (6 points) Calculate the project cash flows, or the sum of initial investment, OCF, investment in working capital, and terminal cash flows (if any) in each of years 0-5. (10 points) d. Calculate the NPV and IRR for the project based on the cash flows estimated in part (c) assuming that the discount rate is 22%. (6 points)
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Initial Investment 90000 Salvage Value 23000 Useful Life 5 years Annual Depreciation Initial Investm... View the full answer
Related Book For
Cost Accounting A Managerial Emphasis
ISBN: 978-0133428704
15th edition
Authors: Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan
Posted Date:
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